About eighteen months ago, the Texas Supreme Court issued a historic ruling on groundwater law. In Edwards Aquifer Authority (EAA) v. Day, the Day family and others sued the EAA claiming that the EAA’s regulation of the aquifer, which limited the landowner’s right to pump groundwater, violated their constitutional rights because the landowner owns the water under their property. The court ruled in Day’s favor; however, the decision was as striking for what it didn’t say as for what it did. While the court held that ownership of groundwater is a property right attached to surface ownership, the Court also held that regulation of the resource is permissible. Questions remained as to how far regulation could extend before constituting an unconstitutional taking of private property. Commentators, including us, noted that we would have to wait for other cases to make their way through the court to provide more information as to which regulations are permissible and which are not. The Fourth Court of Appeals in San Antonio issued the first of these rulings last week.

Edwards Aquifer Authority v. Bragg was already being litigated when the Day decision was issued so, although the ownership question was answered by the Day case, it was unclear whether the particular facts in Bragg would constitute an illegal taking of property. The quick answer is that the court ruled that it was a taking but, as always, the devil is in the details. Because these cases are so fact dependent, it’s worth having a quick review of what happened before we talk about what it means.

The Bragg Facts

The Braggs own two pecan orchards in Medina County located over the Edwards Aquifer, which they purchased in 1979 and 1983 respectively. The orchards are irrigated using Edwards water wells. One of the wells was drilled in 1980 and the other in 1995. These wells were drilled before the EAA regulations came into effect. When the EAA started issuing permits, the Braggs applied for a water permit based on their historic use, which was approximately 229 acre-feet of water per year from the 1980 well and 193 acre-feet from the later well.

EAA issued a permit authorizing only 120 acre-feet for the first well and none for the second because it was drilled outside of the historic use look-back period of June 1, 1972, through May 31, 1993 as designated by the EAA’s authorizing legislation. The Braggs sued the EAA in November 2006 alleging a constitutional takings of private property and other claims. Last week, the Fourth Court held that the reduction in the Bragg’s water consumption forced by the EAA impacted the Bragg’s livelihood in such a way that it constituted a compensable taking. The case will likely be appealed to the Texas Supreme Court and the ruling could and should be changed.

Just a word about takings

Private property is protected from governmental takings by both federal and state constitutions. Although, the Fifth Amendment sounds simple, the application is far trickier. Takings jurisprudence is complicated and confusing. It isn’t worth getting too bogged down in the case law here; however, a couple of important points need to be made.

A court’s decision that a regulation creates a takings does not mean that the regulation is illegal or cannot continue to exist. It simply means that the regulation, while legal, encroaches on a person’s private property rights to such an extent that “just compensation” must be paid for the loss of those rights. Of course, even though a regulation isn’t technically struck down, it can be effectively rendered useless if its continued application is too expensive.

One of the biggest challenges to these types of cases is the determination of “just compensation”. When property has been owned for years, as in this case, the way the court calculates damages can result in radically different results. Larger damage awards further threaten the ability of groundwater districts, including the EAA, to carry out their critical public purpose of keeping water sustainable for the future. It also raises an interesting point about how we value water. On this point, this case adds more questions than it answers.

What the ruling means?

This ruling regarding the taking technically only applies to this particular set of facts; however, there may be many similarly situated landowners. More importantly, it provides a data point that can be applied to future cases. Unfortunately, this data point indicates that the courts are willing to value the impact of regulations on an individual landowner higher than the public benefit of effective groundwater management. According to the court, this particular denial of a permit went “too far” and infringed on the Bragg’s property rights. The court noted, but quickly dismissed, that the Braggs grow a water-demanding crop in a dry and drought-stricken part of the state. The case creates a lot of questions for groundwater conservation districts attempting to manage aquifer resources and is particularly challenging for the EAA. These are issues that the Texas Supreme Court must review as part of the takings balancing test.

The Texas Legislature created the EAA as a result of a federal lawsuit to protect several endangered species. The permitting requirements regarding the historic use period and the pumping cap managed by the EAA were all set by the legislature, which puts EAA between a rock and a hard place if this ruling stands. Regulations the EAA didn’t create have now led to a requirement to pay compensation to the Braggs. The concern is – how many other landowners may have a claim that may require payment. System uncertainty not only threatens species, it also jeopardizes the property rights of current permit holders who have made reliances based on the current system. By most accounts, the EAA has been a success story in term of aquifer sustainability. The population served by the Edwards Aquifer has thrived while the aquifer and the species dependent on it have survived. This future, if this ruling stands, is now more uncertain.

Other groundwater districts also have cause for concern particularly as they attempt to promulgate new regulations to manage their resources. They must attempt to do their job under the shadow of possible expensive litigation, which brings us to the real issue: Texas courts should not be in charge of state groundwater management. Almost one hundred individual districts with a range of funding are not going to be able to manage this uncertainty. Groundwater and Texans will suffer. The state is dry and unregulated pumping continues in many areas. This combination is not sustainable. The court’s limited job is to interpret property rights based on the current laws, but Texans need to be making big decisions about what needs to happen when there isn’t enough water for everyone. It is time for lawmakers to think about big picture policy measures that can give some certainty to groundwater districts so they manage this precious resource without constant fear of litigation. Their job is big enough without adding that to it.